The impact of economic policy uncertainty and monetary policy on R&D investment: An option pricing approach

This paper adopts a real options approach to investigate the effects of economic policy uncertainty (EPU) and monetary policy on R&D investment. Using a panel of U.S. firms over the period 2000-2019, we show that higher (lower) EPU and contractionary (expansionary) monetary policy exert a positive (negative) and significant influence on R&D investment. Our findings shed light on the counter-intuitive behavior of R&D investments, which may help policymakers to anticipate such collateral effects.(c) 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

Automated summary

This paper adopts a real options approach to investigate the effects of economic policy uncertainty (EPU) and monetary policy on R&D investment. The findings show that higher EPU and contractionary monetary policy have a positive influence on R&D investment, while lower EPU and expansionary monetary policy have a negative influence. These findings shed light on the counter-intuitive behavior of R&D investments and can help policymakers anticipate such effects.